BNP Paribas Bets on India’s Rains to Lift Consumer Spending

(Bloomberg) -- It’s not all gloom and doom for India’s consumer companies, and BNP Paribas SA says plentiful rainfall seen this monsoon season and cash handouts to farmers will help revive demand from a multi-year low.

Sales of staples will recover in the second half of the fiscal year that began April 1, as farm-support measures and above-average rain lift rural incomes, the brokerage said in a report.

“A good monsoon tends to have a mid- to long-term impact on consumer spending, and not necessarily in the near term,” Abhiram Eleswarapu, head of equity research at BNP Paribas Securities India Pvt., said by phone. “Right now, we’re seeing a lot of gloom with regard to the consumer sector.”

India’s slowdown and a simmering shadow banking crisis have begun to hurt makers of even low-ticket fast-moving consumer goods. The sector’s revenue growth in the year to March is likely to be the worst in 15 years, Credit Suisse Group AG said in a note this week.

BNP’s outlook also relies on the Reserve Bank of India’s consumer confidence survey that indicated consumers are looking to reduce non-essential spending but are expected to maintain or increase purchases of daily necessities.

The brokerage is bullish on Dabur India Ltd., which produces toothpaste, fruit juices, and hair oil maker Marico Ltd. to play the expected recovery in rural demand. And Jubilant Foodworks Ltd., a distributor of Domino’s Pizza and Dunkin’ Donuts in India, is its urban consumption pick.

But what about discretionary spending by consumers?

“Discretionary spending, as a whole, could remain weak,” Eleswarapu said. “That said, select categories like quick-service restaurants, paints and jewelry seem to have held up better than others.”

To contact the reporter on this story: Nupur Acharya in MUMBAI at nacharya7@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Ravil Shirodkar, Margo Towie

©2019 Bloomberg L.P.